The cryptocurrency is essentially digital money that is exchanged from one person to another through the use of pseudonyms. There are no intermediaries such as banks, nor government supervision or authority, and there are no commissions. But how to enter in cryptocurrency market? You will need two things to start exchanging cryptocurrencies: an exchange site and a wallet.
An exchange site is what you need to convert your local currency, such as the US dollar, into cryptocurrencies. Think of it as the NYSE, the US stock exchange, where cash is converted into stocks or other securities. A wallet is where you store your cryptocurrencies and it is what allows you to send and receive them.
There are two main types of wallets: software and hardware.Software portfolios run on an application or device and are useful if you want to make an active exchange. Hardware wallets are physical storage devices designed to maintain long-term cryptocurrencies. They are similar to a vault. What you need to know about hardware wallets is that, although they are very secure, they are not ideal for people looking to make quick transactions, since it takes several hours or even days to get the cryptocurrencies out of them.
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Many companies provide wallets or exchange sites. Some, like Coinbase, the largest cryptocurrency exchange in the United States, offer both. But, before considering making a strong investment, it is important to remember that cryptocurrency is a new technology.
It is also important to realize that once you perform an operation, you cannot reverse it. You must be absolutely sure that you are sending it to the right person or institution. Errors cannot be undone. Oh, and there's no insurance either: if someone hacks your wallet and steals your bitcoins, bad luck. However, some exchanges, such as Coinbase, offer insurance against attacks on the entire company.
The operations are carried out through public and private keys. A public key is like an email address and a private key is like the password for that email account. If you have someone's address, you can send them an email, but you cannot access your emails unless you also have their password.
This is how the cryptocurrency trade works: you send and receive by providing or using your public key, but you must keep your private key protected, otherwise, anyone can access your cryptocurrencies.
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What could go wrong?
The biggest problem with cryptocurrencies is also what makes them so attractive to some investors: their lack of regulation and their decentralized nature gives buyers and sellers a degree of privacy that they don't get with traditional investments.
But that also means that there is little supervision or security and that your investments are largely unprotected. That led many central banks to warn against the use of cryptocurrencies, and Warren Buffett even said that bitcoin is "probably total rat poison."
Even Goldman Sachs, which announced in May that it would launch a bitcoin trading table, recently seemed less secure. Its mid-year economic report indicated that the cryptocurrency "is not a medium of exchange or a unit of measure or a reserve of value." UBS has expressed similar concerns, saying that the cryptocurrency is too "unstable" to be used conventionally.
Investing always carries a certain risk, but, for now, the world of cryptocurrency looks more like the Wild West than the stock market. Anyone who thinks to do so should think twice. And maybe think twice more.